The Problem with Non-traded REITs

by InvestorLawyers on May 14, 2012

in FINRA,Securities Fraud,Suitability

Lately, there has been a lot of buzz amongst securities arbitration lawyers about non-traded REITs. Investors who have suffered losses as a result of these investments have been encouraged to come forward to attempt to recover their losses through FINRA arbitration. But what exactly is the problem with these investments?

The Problem with Non-Traded REITs

Generally, a problem with these investments arises when a financial advisor fails to adequately disclose to the customer the risks and illiquidity of the investment. Often, the motivation for the broker/adviser’s failure to disclose when recommending the product is the high commission he or she will earn on the investment.

Valuation problems of these investments are another major issue with non-traded REITs, according to investment fraud lawyers. Currently, FINRA rules only mandate that the sponsors of the investments establish an estimated per-share valuation no longer than 18 months after the investment stops raising investor funds. This is an issue because fund raising can, and often does, last for years. As a result, the per-share valuation can go for years without being updated. Furthermore, there is an obvious conflict of interest when it is the non-traded REIT’s sponsor that establishes the valuation.

According to Investment News, as regulators prepare to solidify rules on estimated share value creation for REITs, there is a deep divide within the non-traded REIT industry about valuations. Specifically, the issue revolves around whether an independent third party should be used to conduct appraisals. Many are arguing that complete transparency — regarding commissions generated, pricing and secondary market prices — is needed by the non-traded REIT industry.

Some of the non-traded REITs being investigated by the securities arbitration lawyers at CJ Gray are KBS REIT, Cornerstone Healthcare REIT, Inland Western and Behringer Harvard REIT. If you have suffered losses as a result of your investment a non-traded REIT, find out more about your legal rights and options by contacting an investment fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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